Reducing Moral Hazard Associated with Implied Warranties of Animal Health

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Abstract
Implied warranties convey information regarding animal health to livestock buyers. Statutory implied warranties also include insurance coverage for a warranty breach which removes buyers' incentive to mitigate possible damages when a warranty is breached. Nonmitigation of damages created the problem of moral hazard, which led livestock sellers to seek legislative exemptions abrogating implied warranties. A theoretical analysis of the possible inefficiencies associated with legislative exemptions adopted by twenty‐five states is provided and partial insurance is suggested as an alternative to the legislative shift in liability.

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